Conversion of sales-tax liability in to Loan pursuant to Incentives Scheme is not liable for disallowance u/s 43B

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Conversion of sales-tax liability in to Loan pursuant to Incentives Scheme is not liable for disallowance u/s 43B

There are two circular issued by the CBDT which provides that Conversion of sales-tax liability in to Loan pursuant to Incentives Scheme is not liable for disallowance u/s 43B.

The said circulars are

  1. Circular no. 674 dt. 29th December, 1993
  2. Circular no. 496, dated 25th September, 1987

As a result of above circular, on conversion of sales tax liability into loans, it may be allowed as deduction in the assessment for the previous year in which such conversion has been permitted. 

The copy of both the circular is produced hereunder:

 

CIRCULAR NO. 674 DT. 29TH DECEMBER, 1993

Scope of application of s. 43B—Amounts covered under the sales-tax deferral schemes of the State Governments—Regarding

29/12/1993

BUSINESS EXPENDITURE

SECTION 43B,

The scope of application of the provisions of s. 43B of the Sales-tax collected but not actually paid under deferral schemes of the State Governments was considered in Board’s Circular No. 496 (F.No. 201/34/86-ITA.II, dt. 25th Sept., 1987) [(1988) 68 CTR (St) 109] and it was decided that, where the State Governments make an amendment in the Sales-tax Act to the effect that the sales-tax deferred under the scheme shall be treated as actually paid, the statutory liability shall be treated as discharged for the purposes of s. 43B.

  1. It has since been brought to the notice of the Board that some State Governments, instead of amending the Sales-tax Act, have issued Government orders notifying schemes under which sales-tax is deemed to have been actually collected and disbursed as loans. Such Government orders also provide that entries shall be made in the Government accounts giving effect to deemed collections by crediting the appropriate receipt-heads relating to sales-tax collections and debiting the heads relating to disbursal of loans. It has, therefore, been represented that, as such conversion of the sales-tax liability into loans have similar statutory effect as can be achieved through amendments of the Sales-tax Act, the amounts covered under the scheme should be allowed as deduction for the previous year in which the conversion has been permitted by the State Governments.
  2. The Board have considered the matter and are of the opinion that such deferral schemes notified by the State Governments through Government orders meet the requirements of the Board’s Circular No. 496, dt. 25th Sept., 1987, in effect though in a different form. Accordingly, the Board have decided that the amount of sales-tax liability converted into loans may be allowed as deduction in the assessment for the previous year in which such conversion has been permitted by or under Government orders.

CIRCULAR NO. 496, DATED 25TH SEPTEMBER, 1987

Sales-tax deferral scheme—Provisions of s. 43B of the IT Act, 1961—Clarification regarding

BUSINESS EXPENDITURE

SECTION 43B

Several State Governments have introduced sales-tax deferral schemes as a part of the incentives offered to entrepreneurs setting up industries in back-ward areas. Under these schemes, eligible units are permitted to collect sales-tax and retain such tax for a prescribed period. After this period, the sales-tax is to be paid to the Government either in lump sum or in installments.

  1. Sec. 43B of the IT Act, 1961 introduced by the Finance Act, 1983, w.e.f. 1st April, 1984 provides, inter alia, that a deduction in respect of any sum payable by the assessee by way of tax or duty under any law for the time being in force shall be allowed from the income of the previous year in which such sum is actually paid irrespective of the previous year in which the liability to pay such sum was incurred. Since the introduction of this provision, assesses who collect sales-tax but do not pay the amounts to the Government during the previous year, under the deferral schemes provided by the State Governments are not entitled to the benefit of deduction from their income.
  2. Representations have been received from various State Governments and others that cases of deferred sales-tax payments should be excluded from the purview of s. 43B as the operation of this provision has the effect of diluting the incentive offered by the deferral schemes.
  3. The matter has been examined in consultation with the Ministry of law and the various State Governments. The Ministry of Law has opined that if the State Governments make an amendment in the Sales-tax Act to the effect that the sales-tax deferred under the scheme shall be treated as actually paid, such a deeming provision will meet the requirement of s. 43B.
  4. The Government of Maharashtra have by the Bombay Sales- tax (Amendment) Act, 1987, made the amendment accordingly. The Board have decided that where amendments are made in the sales- tax laws on these lines, the statutory liability shall be treated to have been discharged for the purposes of s. 43B of the Act.
  5. The CITs may bring the contents of this Circular to the notice of all the officers working under them.
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